Investment expert Claudio Chisani says the ‘tide is changing’ for growth investors — so focus on these 3 areas instead

Moneywise recently interviewed investing veteran Claudio Chisani — principal of Chisani Wealth and portfolio manager at BlueShore Financial — for his advice on how to navigate the current environment.

According to Chisani, the investment climate today is very different compared to years in the past, where stocks welcomed the benefits of accommodating monetary policy and abundant liquidity. And that calls for a shift in strategies.

“The tide has changed,” he says. “Staring at an environment of high inflation and higher interest rates, an investor would be well served to be a bit more conservative.”

With that in mind, Chisani suggests several areas where investors can still find attractive opportunities.

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Financials

Chisani says it would be wise to start focusing on conventional dividend-paying strategies, such as looking at financials and insurance companies.

“Those would be beneficiaries of higher rates as long as rates do not get out of control.”

Banks lend out money at higher rates than they borrow, pocketing the difference. When interest rates go up, the spread earned by banks widens.

But Chisani also warns investors to pay attention to the default rate at financial institutions. If rates are rising at a pace that’s beyond expectations and places pressure on consumers’ mortgage payments, it could hurt bank earnings.

These days, banks are generous dividend payers. Several large U.S. institutions — including JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs — raised their payouts in 2021.

Investors can gain access to the group through ETFs like the Financial Select Sector SPDR Fund (XLF).

Chisani says it might also be worthwhile looking at financial names north of the border. Manulife Financial (MFC), he points out, is a Canadian multinational insurance company that offers a generous annual dividend yield of 5%.

Real estate investment trusts

When it comes to fighting inflation, few assets work as well as real estate.

So it’s no surprise that in today’s environment — where consumers prices are rising at their fastest pace in 40 years — real estate is also on Chisani’s shortlist.

He suggests taking a serious look at real estate investment trusts, which are publicly-traded companies that own income-producing real estate.

REITs are great “cash flow mechanisms,” Chisani says.

REITs collect rent from the tenants and pay regular dividends to shareholders. And because rents are going up, investors of high-quality REITs can look forward to collecting a steadily growing stream of dividends.

Additionally, real estate typically appreciates in times of inflation, making the asset class a natural hedge against spiking price levels.

Buying shares in a publicly-traded REIT is just as easy as buying stocks. And if you don’t want to pick individual names, ETFs such as the Vanguard Real Estate ETF (VNQ) or the Schwab US REIT ETF (SCHH) provide convenient exposure to large baskets of REITs.

Commodities

Finally, Chisani points to metals, minerals and energy as proven ways to defend against the threat of rising interest rates. But he also highlights the fact that they have a different set of risks and rewards.